NFO vs IPO: Understanding the Key Differences

In India, both New Fund Offer (NFO) and Initial Public Offering (IPO) serve as mechanisms to raise funds from the public. However, they cater to different financial products and have distinct objectives. Let’s break down their differences:

Nature of Investment of NFO vs IPO

• NFO (New Fund Offer): Launched by mutual fund companies to introduce a new mutual fund scheme. Investors subscribe to units at the offer price, typically ₹10 per unit.
• IPO (Initial Public Offering): A private company offers its shares to the public for the first time. Investors purchasing shares in an IPO gain partial ownership in the company.

Underlying Asset:

• NFO: Represents a mutual fund scheme, which can be equity, debt, hybrid, or other categories.
• IPO: Represents equity shares of a company, granting investors ownership stakes.

Purpose:

• NFO: Pools funds to invest in assets as per the scheme’s mandate, such as stocks, bonds, or a mix.
• IPO: Raises capital for company expansion, debt repayment, or allowing initial investors to exit partially.

Pricing:

• NFO: Units are typically offered at a fixed price (₹10). After the NFO period, prices fluctuate based on Net Asset Value (NAV).
• IPO: Share prices are determined by company valuation and may be fixed or within a range. Once listed, market forces dictate price fluctuations.

Post-Launch Trading:

• NFO: After launch, investors can buy or redeem units based on NAV. Mutual funds are not traded on stock exchanges, except for Exchange-Traded Funds (ETFs).
• IPO: Shares get listed on stock exchanges, allowing investors to trade them at market-driven prices.

Regulatory Oversight:

• NFO: Regulated by the Securities and Exchange Board of India (SEBI) under mutual fund regulations.
• IPO: Also regulated by SEBI, but under equity market regulations for public companies.